Should Turkey Property Investors Worry About The Elephant In The Room?

Istanbul is the only city in Europe where it is worth investing in property, most investors would agree on this. Turkey also has the best performing economy and the fastest growing property market, few can argue with that.

Turkey was once, in the not too distant past, an unstable country plagued with political uncertainty that has since been transformed into thriving economic powerhouse that is now taken very seriously on the world stage.

Turkey is also conveniently located between the Middle East and Europe, which explains why its economy has kept on growing even as Europe’s has continued to slide in the past 3 years.

Turkey doesn’t need Europe as much as Europe needs it.

However there is one shadow on its border to the South East which nobody will ever mention on a property investment brochure or indeed anyone who might advise you on the long term potential of an investment in property in Turkey.

Turkey gains a lot from its close connection to the Middle East and it attracts a lot of investment from its more peaceful near neighbours in the Arab world. What it gains, however, is often put under threat by what I like to call the elephant in the room – conflict on its borders.

At the moment that great elephant is Syria.

Syria’s civil war has been rumbling on since March 2011 with little sign of it reaching a conclusion. In fact things seem only to be getting worse.

Turkey is no stranger to skirmishes with its neighbours, it also borders countries such as Iraq where it has a less than friendly relationship with that country’s Kurdish population.

Georgia, once a part of the USSR, was itself invaded by Russia fairly recently and shares a border to the east of Turkey – then there’s Iran.

While Turkey is on reasonably friendly terms with the latter two – Syria is different.

There have been several incidents that have seen that country’s civil war spill over into Turkey. Syria is not a friendly neighbour.

So what affect, if any, will this have on anyone considering an investment in Turkey property?

The chances are it will have very little directly.

Turkey is a major regional power with one of the world’s largest armed forces. Few countries are capable of posing any significant threat inside Turkey even if they had a reason to.

Cities like Istanbul and the holiday resorts of the Black Sea, where most investors look for property are also several thousand miles away on the opposite side of this vast country and well away from any regional conflicts.

Any spill over of the Syria war is likely to result in two things – a heightened state of alert across Turkey and a threat to its credit rating.

Moody’s have just raised Turkey’s long-term credit rating up a notch to Baa3 and now join Standard and Poors in awarding it an investment grade. Yet Moody’s said this investment grade would have been achieved much sooner were it not for the conflicts that have been taking place on Turkey’s borders.

The unstable border it shares with Iraq and now Syria brings an unwelcome distraction from Turkey’s goal of joining the elite of the world’s major economies while the ongoing argument over Cyprus also makes it difficult to imagine Turkey joining the EU.

Investment grades are important because the higher they are, the easier it is for banks to bring interest rates down and make it easier for its population to afford mortgages.

Turkey is big enough to absorb anything this elephant on its south eastern border can throw at it and at least for now the benefits of having the best of both worlds in Europe and the Middle East outweigh the disadvantages of sharing a border with the world’s most unstable country.

The question for property investors is, how much more could they have made and still make in the short term were it not for this great elephant weighing down on Turkey’s long term International ambitions?

Will the threat of instability put you off investing in Turkish property? Please leave your comments below: